What’s not to like about good luck charms, all things green, leprechauns and the arrival of warmer weather? And just like the seasons change, the central banks also go through their mood shifts.
First off, the blocks today, RBA left its cash rate unchanged & sounded less hawkish -even a touch dovish. Next to go was BoJ who announced end to negative rates, an end to YCC, to discontinue purchases of ETFs and J-REITs.
The response of the AUD was on expected lines whereas the yen defied expectations- even after the first-rate hike in 17 years & the move from negative rates after 8 years, it did weaken and send a strong message - stagflation implies a weak currency- more so, the markets understand that there is difference between a token move away from NIRP & the start of a hiking cycle. Positioning aside., its pertinent to note Its not hawkish BOJ that can push the yen higher - it’s the other side of equation - Fed - that matters the most.
FOMC begins today - stance of "higher for longer" – or even the consideration of it – could be a great surprise markets where dominant narrative since December has been about when Fed's going to ease.
There are clues that high(er) inflation might persist, IEA dropped a big hint when it predicted a "tighter" oil market- It raised its view on oil-demand growth and cut its supply forecast as a result of continued OPEC+ supply-cut policy and disruptions - complete flip from its position six months ago.
Yesterday's couple of second-tier US releases did not move any needle. One thing that stands out: Tight lending standards & slack demand & high cost of capital resulted in a drop in C&I loans outstanding to just above lowest level since Sept 2022.
ZEW will be interesting to check the state of German economy as will be the flash PMIs on Thursday. Bearish view holds good although 1.0866 holds - enroute to 1.0835/40 where 200 dma converges with 50% of Feb-Mar.
After January, two more months without sharp falls in GDP required to complete a full quarter of economic growth, fulfilling the technicality required to escape recession. Monthly declines of more than 0.3% in Feb & March would be needed to ensure another negative quarter. This appears unlikely. Anyway 1.2730 break to see sharper fall.
Got it wrong - had remained convinced that BOJ would be wary of hiking in recession especially after 2000 and 2007 disasters - made the mistake third time.
But after this baby step, Yen showed the mirror to them - Daily close above 149.17 could see 2024's 150.88 high tested - 151.93 soon.
Gutfeel works well. 83.00 break can happen.